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مـؤتـمـر الألـومـنيوم العربـي الـدولـــي 20 – 22 نوفمبر 2012 الدوحة | قطر. ARAB INTERNATIONAL ALUMINIUM CONFERENCE 20 – 22 November 2012 Doha | Qatar. Tuesday, 20 th November 2012 Workshop: London Metal Exchange “LME” Mr. Martin Abbott CEO, LME 10:00 – 12:00. ARABAL QATAR 2012.

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20 22 2012

مـؤتـمـر الألـومـنيوم العربـي الـدولـــي20 – 22 نوفمبر 2012الدوحة | قطر

ARAB INTERNATIONAL ALUMINIUM CONFERENCE

20 – 22 November 2012

Doha | Qatar


Tuesday, 20 الـدولـــيth November 2012

Workshop:

London Metal Exchange “LME”

Mr. Martin Abbott

CEO, LME

10:00 – 12:00


Arabal qatar 2012
ARABAL QATAR 2012 الـدولـــي

Martin Abbott

Chief Executive

20 November 2012, London


The history purpose and workings of the london metal exchange
The history, purpose and workings of the London Metal Exchange

You will learn about

  • History and background

  • Pricing

  • Market Terminology

  • Warehousing and delivery

  • Trading at the LME

  • The Ring

  • The role of the LME broker/dealer

  • Clearing

  • Regulation

  • LME Data and other services


Introduction to the lme
Introduction to the LME Exchange

The training takes from 9.00am to 5.00pm, including a visit to the viewing gallery to watch the final trading session. You are most welcome to ask questions throughout the day. And if you have any follow up queries or problems after the course or issues to clarify - you can email us direct at [email protected]

The LME has a team of trainers who can come to you and talk about how hedging works, business development and any associated topics relevant for your area of business.


The london metal exchange
The London Metal Exchange Exchange

Established in response to

Industrial revolution

  • high metal consumption and so imports from abroad

    Risk of price falls during long shipping voyages

    Need to formalise trading into one marketplace:

  • fixed trading times

  • standard contract specifications

  • source of price ‘discovery’


Lme volumes 2012 near 120 million lots 9 up year on year
LME volumes 2012 ExchangeNear 120 million lots, 9% up year on year



Primary services of the lme
Primary services of the LME Exchange

Pricing

Terminal Market

Hedging

Delivery

Primary Role of LME

Price Convergence


Pricing methods
Pricing methods Exchange


Different pricing methods
Different pricing methods Exchange

Producer pricing

Survey pricing

LME pricing


Producer pricing
Producer pricing Exchange

Prices established by producers either yearly, half yearly or quarterly

  • Advantages

    • Reflects an understanding of consumers

    • Traditional method

  • Disadvantages

    • Price increases due to rising raw material prices

    • Not transparent

    • Lack of flexibility


Survey pricing
Survey pricing Exchange

Prices are generally recorded and disseminated when both buyers and sellers confirm a transaction behind a price to an industry publication e.g. Metal Bulletin, Steel Business Briefing

  • Traditional and industry recognised

  • Global and regional representation

  • Comfort level - third party discovery

  • Wide range of prices and grades

  • Historic, averages

  • Quotes may not be competitive

  • Lack of transparency

    • Methodology

    • Prices and tonnages


Lme pricing
LME pricing Exchange

LME Prices have to reflect the material activities of the market

  • Unique price set by demand and supply

  • Transparent

  • Traded and tradable real time prices

  • Heavily regulated market

  • More accurate hedging


What does the lme price represent
What does the LME price represent? Exchange

The LME price represents material:

  • Of an LME registered brand

  • Stored in an LME approved warehouse

  • Duty unpaid

  • Buyer to pay for delivery out of warehouse


The metals value chain
The metals value chain Exchange

How to use an LME price

LME price plus production costs and profit margin

LME price minus discount

LME price minus discount

LME price

Semi Fabricated Products

Mining

Concentration

Smelting

Metal Products

Cathode

Billet

Low Metal Content

Wire

Rebar

Ingot

Cans


How to use an lme price
How to use an LME price Exchange

The price for normal physical sales, if using LME pricing as a basis, will be the LME price adjusted for:

  • Grade differential versus LME grade

  • Differential for favoured brand

  • Differential for favoured location versus the LME approved delivery point

  • Packaging differential

  • Delivery differential to consumer works

  • Timing differences

  • Volume or other discounts / premiums etc


In most of these examples we will be isolating the commodity cost from other costs
In most of these examples, we will be isolating the commodity cost from other costs

Profit margin

Overheads

Production costs

Raw materials cost

– the commodity

Other hedgeable costs

i.e. energy, fx, freights,…

Total

Sales

Price


What is hedging
What is hedging? commodity cost from other costs

Hedging

Establishing a position in a commodity futures market (LME) which is equal and opposite to a risk on a physical market.

  • Protects against adverse price movements

  • Locks in an agreed profit margin

  • Protects inventory value


Hedging is addressing risk positions
Hedging is addressing risk positions commodity cost from other costs

  • A Risk position is one that has an uncertain outcome, a position which may make or lose money depending on market movements

  • It is a purchase not yet matched with a sale or a sale not yet matched with a purchase

  • A LONG position will make a profit if the price goes up; a loss if the price goes down

  • A SHORT position will make a profit if the price goes down; a loss if the price goes up

  • If you are SQUARE, you will not be affected by market movements but you may still have basis risk


Hedger vs speculator
Hedger vs. speculator commodity cost from other costs

  • A Hedger starts with a price exposure, buys or sells futures contracts, and therefore offsets the price exposure.

  • A Speculator starts without price exposure, buys or sells futures contracts, and takes on price exposure


Two distinct markets
Two distinct markets commodity cost from other costs

Futures market

  • Material at semi-converted stage

  • Market participants

    • Members

    • Investment funds

    • Traders

    • Producers/smelters

    • Converters/fabricators

    • Merchants/distributors

    • End Users

  • Physical market

  • Material at any stage of production

  • Market participants

    • Traders

    • Producers / smelters

    • Converters / fabricators

    • Merchants / distributors

    • End Users


Speculators
Speculators commodity cost from other costs

  • Who are the speculators?

    • Technical funds/Algos/HFTs: momentum strategies

    • Hedge funds: exploit price anomalies

    • Passive investors: buy and hold

    • Market-makers: buy low, sell high

    • FCMs (Futures commission merchant)

    • CTAs (Commodity Trade Advisers)

    • CPOs (Commodity Pool Operators)

  • Most investors pursue strategies that have a neutral or counter-cyclical impact on prices i.e. they buy when they perceive the price to be lower than fair value and sell when it is above fair value.


Prompt date structure
Prompt date structure commodity cost from other costs


Lme date structure
LME Date Structure commodity cost from other costs


Rolling prompt dates
Rolling prompt dates commodity cost from other costs

  • Cash – Two business days from today

  • Tom – Tomorrow’s date

  • 3 months – 3 calendar months from today


Lme aluminium alloy and lme nasaac futures and options contracts
LME Aluminium Alloy and LME NASAAC commodity cost from other costsFutures and options contracts

20 tonnes

Settlement up to 27 months

Industry usage:

The main consumers, auto manufacturers, use different grades of alloy in different regions of the world. While the LME contract was being traded for customers in Europe and the Far East it was evident that it was not gaining acceptance in North America.  For this reason, the LME entered talks with secondary smelters, scrap dealers, consumers, traders and merchants in the US to develop the LME's first ever regional contract.


Lme aluminium futures and options contracts
LME Aluminium commodity cost from other costsFutures and options contracts

25 tonnes

Settlement up to123 months, options up to 63 months

Industry usage:

It is extremely light, pliable, has high conductivity and is resistant to rust. Little wonder then that it has become the most extensively used metal and more recently the largest contract traded on the LME.


Lme traded and cleared currencies
LME traded and cleared currencies commodity cost from other costs

LME contracts trade in US Dollars

LME contracts can also be cleared in the following currencies:

Euro

GB Sterling

Japanese Yen


Lme published prices
LME published prices commodity cost from other costs

Pricing basis –in warehouse, duty unpaid

  • Asian Benchmark

    • published 07.30 GMT (08.30 BST)

  • Official Prices

    • prices from the 2nd Ring Close

    • Cash, 3M, Dec 2013, Dec 2014, Dec 2015

  • Settlement Price

    • Official “Cash” sellers price

  • Closing Prices

    • referred to as “evening evaluations” established at 5pm

    • used by LCH for daily margining purposes

    • used by members for risk management


Market terminology
Market terminology commodity cost from other costs


LME Instruments commodity cost from other costs

  • Futures

  • Options

  • Warrants

  • LMEswaps


What is a futures contract
What is a futures contract? commodity cost from other costs

A future is an agreement to buy or sell a

standard quantity of a specified asset (material)

on a fixed date at a

standard quantity

specified asset (material)

price agreed today


Lme traded options contracts
LME traded options contracts commodity cost from other costs

“The purchase of an option gives the buyer (of the option)

the right but not the obligation to buy or sell

an underlying futures contract for a fixed delivery date

at a fixed price”


Lme traded options contracts1
LME traded options contracts commodity cost from other costs

A call option

The right to buy

A put option

The right to sell


Lme terminology
LME terminology commodity cost from other costs

  • Positions:

    • net total of open futures contracts a party has against a particular prompt date

  • Short

    • sell futures

  • Long

    • buy futures

  • Prompt date

    • settlement date of a futures contract


Settlement of lme contracts
Settlement of LME contracts commodity cost from other costs

Settlement on prompt date by:

  • Financial settlement of futures contract

    • Buy / sell an equal and opposite position

      and / or

  • Delivery

    • Using LME Warrants, the method by which LME contracts are delivered


When to close an lme position
When to close an LME position commodity cost from other costs

  • Usually two days before prompt (Cash) Usually no later than…

  • TOM

    • Must be executed before 12.30pm (client contracts)

    • Usually prompt adjusted to cash

    • Adjustment trade called ‘tomorrow next day’ (Tom Next)


Forward prices
Forward prices commodity cost from other costs

  • Forward prices the prices being quoted for delivery dates beyond the cash prices

  • Contangonearby price of material is lower than the forward price

  • Backwardationnearby price of material is higher than the forward price

  • “The Spread”

    the Cash to 3 months forward curve difference

  • Carry

    difference between 2 forward prices


Forward price contango
Forward price - Contango commodity cost from other costs

P

R

I

C

E

Quoted price for forward dates

t 1 2 3

Forward dates


Forward price contango1
Forward price - Contango commodity cost from other costs

LME Aluminium: 3 Sept 2012


The maximum contango lme aluminium
The maximum contango LME Aluminium commodity cost from other costs

Cash to 3 months

Cash price $1820.00

Cost to finance + $ 23.50

Warehouse rent + $ 34.20

Insurance + $ 3.00

3 month price $1880.70

  • What would traders do if the cash price was $1820 and the 3 months price was $1885?


The maximum contango
The maximum contango commodity cost from other costs

Cash to 3 months

Cash price $2500.00

Cost to finance + $ 31.25

Warehouse rent + $ 34.20

Insurance + $ 3.00

3 month price $2568.45


Forward price backwardation
Forward price - Backwardation commodity cost from other costs

P

R

I

C

E

Quoted price for forward dates

t 1 2 3

Forward dates


Forward price backwardation1
Forward price - Backwardation commodity cost from other costs

LME Cobalt: 4 Jan 2012

There is no theoretical maximum backwardation


Forward price commodity cost from other costsContango and backwardation

LME Copper: 3rd Sep 2012


Carries
Carries commodity cost from other costs


Moving positions why
Moving positions – why? commodity cost from other costs

You are a copper mine and you have sold futures prompt 1st July. Why might you want to move that position to a later date? Or an earlier date?

You are a speculator who has bought futures. Why might you want to roll the position forward?

You are a car manufacturer and have bought futures prompt October. Why might you want to change that date?

A Carry is the simultaneous purchase (sale) and sale (purchase) of the same quantity of same metal for different Prompt dates


Carries1
Carries commodity cost from other costs

October

November

SELL

(Short)

Sell

Buy

BORROW

  • Short position

  • Selling on LME

  • Want to delay prompt date

  • Borrow (buy then sell)


Carries2
Carries commodity cost from other costs

October

November

LONG

(Buy)

Buy

Sell

LEND

  • Long position

  • Buying on LME

  • Advance LONG position forward

  • Lend (sell then buy back)


Carries3
Carries commodity cost from other costs

BUY

SELL

  • BORROWING IN A BACK COSTS


Carries4
Carries commodity cost from other costs

SELL

BUY

  • BORROWING IN A CONTANGO EARNS MONEY


Lme warehousing fundamentals of delivery
LME warehousing & fundamentals of delivery commodity cost from other costs


Lme delivery why
LME delivery: why? commodity cost from other costs

Helps price

convergence

between

futures/physical

Price convergence

instills credibility in

the LME price

Why the need

for delivery

Serves industry in times

of over/under supply

LME delivery is not

designed to replace

current supply mechanism

but to support it


Lme role in storage
LME role in storage commodity cost from other costs

LME does NOT

buy or sell

physical material

LME does NOT

own storage facilities

LME APPROVES

locations and

storage facilities

LME does NOT

own transportation

operations

LME does NOT

set rates for rents

and handling


Lme warehouse locations circa 1960 lme price was a uk delivery price
LME warehouse locations circa 1960 commodity cost from other costsLME price was a UK delivery price

ManchesterBirminghamSwanseaAvonmouthLondon

GlasgowNewcastleLiverpoolHullBirkenhead


Warehouse locations over 700 storage facilities listed by the lme
Warehouse locations commodity cost from other costsOver 700 storage facilities listed by the LME

1. Antwerp, Belgium 10. Barcelona, Spain

2. Bremen, Germany 11. Bilbao, Spain

3. Hamburg, Germany 12. Helsingborg, Sweden

4. Genoa, Italy 13. Hull, UK

5. Leghorn, Italy 14. Liverpool, UK

6. Ravenna, Italy 15. Tyne & Wear, UK

7. Trieste, Italy

8. Rotterdam, Netherlands

9. Vlissingen, Netherlands

1. Busan, South Korea

2. Gwangyang, South Korea

3. Incheon, South Korea

1. Nagoya, Japan

2. Yokohama, Japan

1. Baltimore, Maryland

2. Chicago, Illinois

3. Detroit, Michigan

4. Long Beach, California

5. Los Angeles, California

6. Louisville, Kentucky

7. Mobile, Alabama

8. New Orleans, Louisiana

9. Owensboro, Kentucky

10. St. Louis, Missouri

11. Toledo, Ohio

  • Dubai, UAE

  • Kocaeli, Turkey

  • Tekirdhag, Turkey

1. Johor, Malaysia

2. Singapore

3. Port Klang, Malaysia


Lme location approval process
LME Location Approval Process commodity cost from other costs

Net consumption area

or gateway

Safe and

well managed

Location

approval

Logistically sound

conduit for the passage

of material

Politically

economically

fiscally stable


Warehouse companies approval
Warehouse Companies Approval commodity cost from other costs

Warehouse company:

well established and

experienced in handling

relevant material

Warehouse:

size, quality, capacity and

operation of the building

must be suitable

Listed

warehouses

Facilities:

weighing, strapping,

cranes and forklifts

regularly inspected

Good access to road, rail

and water where required


Lme delivery and lmesword
LME Delivery and LMEsword commodity cost from other costs

Delivery of LME futures contracts is satisfied by delivery of LME warrants

  • LME warrants are bearer documents of possession relating to one specified lot of material in warehouse

  • Delivery is made through the transfer of warrants from seller to buyer

  • LME warrants transferred through electronic transfer system – LMEsword

  • Secondary market in LME warrants

    • location & brand premiums


LMEsword and warranting process commodity cost from other costs

LME listed brand

  • The LME lists brands for the following products: Al, Cu, Pb, NASAAC, Ni, Sn, Zn, Steel, Cobalt and Moly.

  • The material produced is delivered for storage at the LME listed facility. An inspection of the metal is carried out in compliance with the warehouse agreement.

  • Instructions to issue the LME warrant is sent from the customer to the warehouse company. The warehouse company instructs the London agent to issue the LME warrant via LMEsword.

  • LME warrant is issued by London agent and delivered to the LME member firm (can be delivered direct to the owner).

  • The LME warrant is checked by the LME member firm and either delivered to the depository or retained by the owner.

  • LME warrants in the depository are scanned into LMEsword participant accounts, allowing brokers to receive, sort and deliver warrants electronically.

  • LME warrant can be held for financing or delivered to the exchange against ‘short’ futures positions via sword to LCH.Clearnet and then randomly redistributed to the ‘long’ futures positions.

Material arrives at the LME listed storage facility and is checked for conformity

Instructions to issue LME warrant

LME warrant issued

LME warrant checked

Delivered to depository

Lodged in sword member account


Trading at the lme
Trading at the LME commodity cost from other costs


Lme trading venues
LME trading venues commodity cost from other costs

  • The ring Floor Trading

    (11.40 – 17.00)

  • Inter-office Telephone Trading

    (24 hours)

  • Electronic Screen Trading (Select)

    (01.00 – 19.00)


Lmeselect inter broker screen trading platform
LMEselect commodity cost from other costsInter-broker screen trading platform


Inter office 24 hour telephone trading
Inter - Office commodity cost from other costs24 Hour telephone trading


The ring 5 minutes per metal
The Ring commodity cost from other costs(5 minutes per metal)

  • First session

  • First ring

  • Second ring

    • Official prices

  • Kerb(all metals)

  • Second session

  • Third ring

  • Fourth ring

  • Kerb(metals phased out)

    • Closing prices


The ring
The ring commodity cost from other costs

Trader

  • The only individual from the team who can transact within the Ring

  • This individual will be seated on the red seats in the Ring


The ring1
The ring commodity cost from other costs

Clerks

  • Usually two individuals per team who provide communication in and out of the Ring.

  • One will be using hand signals to indicate what price is currently trading, while the other will be recording transactions.


The ring2
The ring commodity cost from other costs

Telephone clerks

A number of team members

who utilise telephones to either

receive orders from large clients, or

provide a commentary back to their offices in London & overseas offices.

Let’s try the hand signal!


The physical and paper market
The Physical and Paper market commodity cost from other costs

Producer

Consumer

Physical Transaction

Client

“Paper” Transaction

“Paper” Transaction

Broker

Client

Broker

Broker

Client

LME

Ring Trading

LME Select

Interoffice

Client

Broker

Broker

Client

LMEsmart

-

Clearing House


Understanding the role of an lme broker dealer
Understanding the role of an LME broker/dealer commodity cost from other costs


The role of an lme broker dealer
The role of an LME broker/dealer commodity cost from other costs

The broker/dealer

  • Provides its clients with access to the market

    • acts as broker i.e. intermediary

  • Trades

    • for its own account (dual capacity) with

      • Clients

      • Other market members

  • Provides liquidity to clients and the market


Lme exchange contracts
LME exchange contracts commodity cost from other costs

  • Members initially enter into contracts with one another in their own names

  • Members are responsible for performance of the contract and assume risk against each other until they input the trades into the LCH.Clearnet system

  • Once contracts have been registered and accepted by LCH.Clearnet they are replaced by 2 new separate contracts involving LCH.Clearnet as buyer and seller (legal novation)

  • Members are now responsible for performance and risk of the contract to the LCH.Clearnet


Lme client contracts
LME client contracts commodity cost from other costs

  • Clients have contracts with the broker – not the Exchange or LCH.Clearnet or any other member

  • Responsibility of the client to make final decision on how to trade, although broker will advise

  • Broker responsible for contract performance and assumes the risk on the client

  • Client is buying or selling from the broker and not the market or another member firm.


Lme client contracts1
LME client contracts commodity cost from other costs

  • It is at the broker’s discretion whether the order is filled:

    • From his proprietary trading book

    • Cross it with opposite order from another client

    • Put it into the market to seek other bids and offers

  • The broker is acting in a ‘dual capacity’


  • Different types of transaction order
    Different types of transaction order commodity cost from other costs

    Market order

    An order to buy or sell immediately without regard to a specific priceLimit orderAn order to buy or sell at a specific priceGTC (Good until cancelled)An open order (which specifies a price) but stands until executed or cancelled

    Stop loss order

    Order to buy or sell at market once a specific price has traded

    Market on open/Market on close

    Tends to be used by funds


    Clearing
    Clearing commodity cost from other costs


    Role of the clearing house
    Role of the clearing house commodity cost from other costs

    Central counterparty to the market

    Manager of counterparty risk to clearing members

    Responsible for Settlement and delivery

    Responsible for Management of credit risk

    Member monitoring


    How clearing works
    How clearing works commodity cost from other costs

    Futures contracts without a clearing house

    Futures contracts with a clearing house

    Y sells to the Clearing

    House 1000 tonnes @ $5000

    The Clearing House sells

    to Z 1000 tonnes @ $5000

    Clearing house

    Y

    Z

    Broker Y sells 1000 tonnes to broker Z @ $5000

    Y

    Z


    Benefits of a central counterparty
    Benefits of a central counterparty commodity cost from other costs

    Counterparty risk guarantee

    Increased

    market efficiency

    Potential

    capital

    efficiencies

    Efficient

    back-office &

    banking

    arrangements

    Post trade

    anonymity

    Increased

    operational

    efficiency

    Multilateral netting /

    eliminate bilateral

    relationships

    Default management


    Benefits of a central counterparty commodity cost from other costs


    Role of risk margin deposits
    Role of risk – Margin deposits commodity cost from other costs

    • The Clearing House takes security to protect against a clearing member unable to pay its losses

    • Two elements:

      • Initial margin

      • Variation margin


    Initial margin purpose
    Initial margin commodity cost from other costsPurpose

    “For the Clearing House to be holding sufficient funds on behalf of each Clearing Member to offset any losses incurred between the last payment of margin and the close-out of the Clearing Member’s positions should that Clearing Member default”


    Initial margin
    Initial margin commodity cost from other costs

    • Returnable deposit in respect of net open positions

    • Calculated using London SPAN

    • Initial margin payable using cash or acceptable collateral

    • Rates set by the Risk Management department in consultation with the LME

    • Clearing members notified in advance of margin rate changes


    Setting the scanning range
    Setting the scanning range commodity cost from other costs

    • How are the rates set?

    • Forecast of price volatility, based on:

      • Recent price movements

      • Expected change in volatility

      • For example, seasonality, political events, etc


    Current initial margin rates at lch clearnet 7 th september 2012
    Current initial margin rates at LCH.Clearnet commodity cost from other costs 7th September 2012


    Margin requirements initial and variation margins are used between broker and client
    Margin Requirements commodity cost from other costsInitial and variation margins are used between broker and client

    • Client A sells 40 lots (1000 mt) LME Copper prompt 3 months.

    • Initial margin rates for LME Copper are as follows:

      Initial margin payment

      Initial margin payment for this transaction would be as follows:

      $14,500 x 40 lots = $580,000


    Intra day margins
    Intra-day margins commodity cost from other costs

    • Intra-day margin calls may be made when price or position movements are particularly volatile and cover already held has been eroded

    • Payment to be made same day value

    • Confirmed through Protected Payment Systems (PPS) within one hour


    Variation margin for lme contracts
    Variation margin for LME contracts commodity cost from other costs

    • For traditional contracts profit/loss realised only on prompt date

    • System considers not only size, but also timing of cash flow

    • Forward profits reduce, but forward losses increase overall margin

    • LME mini contracts profit/loss realised each day


    Gross variation margin formula
    Gross variation margin formula commodity cost from other costs

    Contingent Variation Margin (CVM)

    =

    (Today’s closing price – or + trade price)

    x

    Tonnes per contract

    x

    Lots

    NOTE: CVM can be covered by cash or collateral


    Default history
    Default history commodity cost from other costs

    There have been six defaults in LCH.Clearnet’s history

    Drexel Burnham Lambert (1990);

    Woodhouse, Drake and Carey (1991);

    Barings (1995);

    Griffin (1998);

    Lehman Brothers (2008)

    MF Global (2011)

    Some near misses:

    Yamaichi International (Europe) (1997);

    Enron Metals (2001);

    Refco Securities and Refco Overseas (2005)


    Regulation of the lme
    Regulation of the LME commodity cost from other costs


    UK Regulatory Environment commodity cost from other costs

    Parliament FSMA 2000

    FSA

    (including banking supervision)

    LCH.Clearnet

    London Metal Exchange

    LME Members


    Future UK Regulatory Environment commodity cost from other costs

    Bank of England

    Prudential Regulation Authority

    (PRA)

    Financial Conduct Authority

    (FSA renamed

    to FCA)

    Clearing Houses

    Exchanges

    Authorised firms


    Regulation of the lme1
    Regulation of the LME commodity cost from other costs

    The LME is regulated under the FSMA 2000 and must

    • Ensure proper and orderly market and give protection to investors

    • Have effective monitoring and enforcing of its rules

    • Have effective investigation and resolution of complaints

    • Maintain high standards of integrity and fair dealing by its members

    • Co-operate with other regulatory authorities

    • Have sufficient financial resources


    Regulation of lme members
    Regulation of LME members commodity cost from other costs

    • LME members providing investment services to customers are regulated under the FSMA 2000 and:

      • Must be authorised by FSA

      • Staff giving investment advice must be registered with FSA

      • Company must comply with regulatory capital rules

      • Company must comply with conduct of business rules

    • LME members are required to comply with all LME rules including market conduct

    • LME members must maintain proper records


    Lme membership trading categories
    LME membership trading categories commodity cost from other costs


    Lme member default provisions
    LME member default provisions commodity cost from other costs

    • Companies Act has unique provisions for Exchange traded contracts

    • LME and LCH.Clearnet act ahead of liquidator

      • LCH.Clearnet manages Exchange Contracts

      • LME manages Client Contracts

        • Client Contracts closed out at market price

        • Profits and losses netted

        • Positions transferred to other brokers

    • These provisions do not apply to OTC contracts


    Opening an account
    Opening an account commodity cost from other costs

    • Members need to establish the client’s:

      • The identity of the company, its owners, its controllers, its key staff

      • Financial resources

      • Business model and requirements

      • Level of experience of senior and key staff

      • Accounting systems for derivatives

    • Client must be approved by member’s risk and credit departments together with any limits / credit terms


    Opening an account1
    Opening an account commodity cost from other costs

    Client needs to:

    • Ensure that the member has received relevant documents

    • Understand risk disclosures

    • Sign commercial agreement and account opening forms


    Cost of trading
    Cost of trading commodity cost from other costs

    Commission rates

    Brokers execution and clearing commissions dependent on:

    • Volume of business agreed over year

    • Credit facility offered to client

    • Level of service client requires


    Lme data feeds
    LME data feeds commodity cost from other costs

    • Two feeds are available:

    • LMEselect feed for CAT 1 and 2 members and their clients.

    • LME MDD (Market Data Dissemination feed) for licensed LME data distributors.

      • The amount of price messages sent out each day is constantly increasing.

      • Today we can expect to see over 1 million price messages published.


    Lme mdd data via licensed distributors
    LME MDD data via licensed distributors commodity cost from other costs

    SCRAP

    REBAR

    • Real time data

    • - 24 hours a day

    • - Coverage may vary between distributors

    • Delayed data

    • - 30 minutes delayed data at a reduced fee

    • Next day data

    • - Published after midnight UK time and public display of this data is permitted.

    • Historical data

    • - Some distributors provide access to this.


    Lme historical data
    LME historical data commodity cost from other costs

    • LME Online Store

    • All historical data sets are available to purchase in Excel format from the LME Online Store

    • LME website – Free Data Service

    • A limited selection of data sets from the current calendar year are available to view for free after registering online.

    • - Data includes:

    • - Official Prices

    • - Daily Stocks

    • - Monthly average prices and volumes

    • - A selection of market reports

    • - Graphing tool for chart pricing


    Key mdd prices
    Key MDD prices commodity cost from other costs

    • Official & Settlement Prices:

    • They are discovered from the open-outcry close of the second ring trading session.

    • Indicative Evaluations:

    • Published daily for all metals at the start of kerb trading at 16.15 UK time. (Includes spreads and outright prices)

    • Provisional and Final Evaluation: (Closing Prices)

    • Determined at the close of open out-cry trading (17.00 UK time)

    • Price source for US dollar prices is the LME. For Euro, GBP and Yen; the source is LCH.Clearnet.


    Report data 30 scheduled reports sent per day by lme mdd
    Report data commodity cost from other costs30 scheduled reports sent per day by LME MDD

    • Key Reports:

    • Daily Warehouse Stock Movements

    • 9.00 am daily as of 16.30 previous day

    • Futures Trading Volume Summary

    • Previous days official volume by currency at 10.00 am

    • Intra-day volume snapshot report at 12.20, 15.45, 18.00

    • Futures Trading Reports by Prompt at 10.15 am for previous day

    • Open Interest

    • Exchange Open Interest (open positions of LME clearing members)

    • Market Open Interest (open positions of LME members and clients)

    • Compliance Reports: Futures Banding, Warrant Holdings


    Vendor and subscriber statistics
    Vendor and subscriber statistics commodity cost from other costs

    • Over 140 authorised vendors worldwide

    • Approximately 38,000 users worldwide

    • Over 24,000 ‘real-time’ terminals worldwide

    • Over 13,000 users receiving ‘30 minute delayed’ data

    • Countless users of ‘Next day’ data


    Access the LME’s own real-time price data application… commodity cost from other costs

    • Get a complete view of the LME market from your desktop, laptop or mobile device.

    • A choice of real time or 30 minute delayed access to all prices, charts and reports.

    • Monthly or annual subscriptions are available

    • Subscribe for a 4 week free trial at www.lmelive.com


    Disclaimer
    Disclaimer commodity cost from other costs

    • The information contained within this presentation is for illustrative and educational purposes only and should not be relied upon in making any investment decision. Whilst every effort has been made to ensure the information is up-to-date and correct, the LME cannot guarantee that it is completely accurate and free from human error.


    20 22 20121

    مـؤتـمـر الألـومـنيوم العربـي الـدولـــي20 – 22 نوفمبر 2012الدوحة | قطر

    ARAB INTERNATIONAL ALUMINIUM CONFERENCE

    20 – 22 November 2012

    Doha | Qatar


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